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Real Estate Investing
By admin | February 18, 2008
Real Estate Investing, with Tony John
Real Estate Course - Part 4
Filed under: Education — Tony John @ 12:56 am
In 2005 I wrote an introductory course on commercial real estate investment. This 5-part course was received via email in daily installments. Here is Part 3.
Commercial Property: How To Invest Like The Rich
Part 4: Cashflow or Capital Growth?
Some people think you have to invest either for capital growth, or cashflow. As though you can’t get both, so you have to choose.
With a lot of properties, particularly residential, this is largely true. If I look at my own residential properties, I have certainly got much larger capital growth on the low-yielding properties, than the high-yielding ones. Although I would point out that if you buy particularly well, you can get both.
One of the things I particularly like about commercial property is that it’s possible to get both.
4.1 Why Is Cashflow So Important?
Imagine you own a house, and it literally doubles in value overnight. Next morning, you walk into the kitchen for breakfast, a far wealthier person. But what actually has changed? Do you have nicer food in the fridge? Is there more money in your bank account? In your wallet?
Can you make your mortgage payment more easily?
While there’s no doubt that you are more wealthy, it’s purely on paper. You may well feel happier, but I’m asserting that it makes absolutely no tangible (ie real, physical, measurable) difference, until you ‘cash it out’, either by:
* selling the house, or
* refinancing the house
Until you get the cash in your account, your new wealth is purely on paper.
There are a lot of people out there (especially older, retired people who own their own home) who are sitting on enormous wealth but feel poor.
And no wonder - because unless you have the available cash to spend, you may as well be. If you can’t afford your groceries, you are living the life of a poor person - even if you own a nice house!
That belief drives my approach.
I use cashflow to experience wealth now, in the present. Not in 10 years, or 20 years, but this month. I have money pouring into my account every month, which is available for me to use as I see fit.
I don’t want to be sinking money into some big pit, hoping for a big payoff in the future. I’ve got my government-mandated retirement fund for that!
Topics: Commercial Real Estate |